Household credit growth encouraging: FNB

The South African household sector was slowly reducing its vulnerability to hikes in the interest rate, First National Bank said on Monday.

This was being achieved through keeping credit growth at rates expected to be below nominal disposable income growth, the bank's property sector strategist John Loos said in a statement.

"This is expected to translate into a further decline in the important household debt-to-disposable income ratio in the near term, to lower and healthier levels."

In February, household sector credit growth of 5.25 percent year-on-year was recorded, which was slower than the previous month's 5.6 percent.

"The January growth rate had been slightly faster than December, which could have possibly pointed to a re-acceleration, but the February number suggests that such concerns were premature," he said.

"Growth momentum is better illustrated by using month-on-month annualised growth rates, and here we see a meagre 3.72 percent growth for February, with the three-month average growing by 4.3 percent, both rates pointing to very slow growth momentum."

While residential property market activity, along with new residential mortgage loan growth, had been brisk in recent times, much of the new loan growth was merely loans changing hands as homes changed hands.

As a result no meaningful increase in growth of the overall value of residential mortgage advances outstanding had yet been seen, with banking sector mortgage advance growth measuring only 1.4 percent year-on-year in January.

"Simultaneous to slow mortgage growth, we have had large declines in unsecured lending growth, the net result being a slowdown in overall household sector credit growth," said Loos.

"In real terms, adjusting for consumer price inflation, the value of banks' residential mortgage loans outstanding continued its multi-year decline to the tune of -4.1 percent year-on-year in January."

This followed the post-boom real correction in book size which started around 2009.

The slow pace in household credit growth was appropriate at the present time, as the fourth quarter of 2013 saw a slow economy which led to nominal disposable income growth dropping to as low as 6.5 percent.

Significant progress had been made in reducing the debt-to-disposable income ratio from an all-time high of 83 percent back in early-2009, down to 74.3 percent by the end of 2013.

"This significantly reduces the vulnerability of the household sector to 'shocks' in the form of interest rate hikes or to income," he said.